Anti-Israel campaigners have succeeded in forcing the Edinburgh International Film Festival to return funding from the Israeli Embassy.

Members of the Scottish Palestine Solidarity Campaign had threatened to picket the event in June unless £300, which was to be used to fly Israeli director Tali Shalom Ezer to Scotland, was rejected.

Festival organisers said the decision was not a result of those threats, but was instead based on comments made by film director Ken Loach, speaking on behalf of the SPSC.

He had claimed “the massacres and state terrorism in Gaza make this money unacceptable” and that film-lovers should “stay away” from the festival in “support for the Palestinian nation”.

Sir Jeremy Isaacs told The Times he was "disgusted" by Mr Loach's actions and the "capitulation" of the organisers.

"The idea that he should lend himself to the denial of a film-maker's right to show her work is absolutely appalling," he said.

Israeli Ambassador Ron Prosor said: “Rather than encourage an open dialogue through cultural exchange, the festival is promoting bigotry by denying the British public the opportunity to hear all points of view.

“It is regrettable that the organisers would choose to boycott Israel and compromise its artistic integrity.”

Ms Shalom Ezer’s short feature, Surrogate, about a young man’s relationship with his sexual therapist, is still due to be shown. It is thought her travel will now be funded by the festival out of its own budget.

A festival spokeswoman referred to the Israeli government as a “troubled regime” and said Mr Loach had spoken on behalf of “the film community”. She said the 12-day event was “wholly cultural and apolitical”.

In an email to the SPSC, Ginnie Atkinson, managing director of the festival, said the initial decision to accept the money had been “a mistake” and returning it was “a natural conclusion”.

The Israeli Embassy had been listed as a programme sponsor, alongside others including the Mexican Embassy and the Polish Cultural Institute.

SPSC chairman Mick Napier said: “Boycott is a non-violent means to pressure Israel to end its oppression of the Palestinians, and the film festival is simply playing its part in that campaign.”

The festival includes the world premiere of Nakba, (the Arabic for "catastrophe") a Belgian documentary which “tells the story of the Palestinian exodus and the 1948 Arab-Israel war”.

In March, Mr Loach attacked Israel’s action in Gaza, calling it “one of the great crimes of the last decades” and arguing that the rise in antisemitism was a direct consequence.

He said the country would “have to pay” for Operation Cast Lead.

In August 2006, the festival declined the same amount of funding from the Israeli Embassy following the Lebanon war.